For this reason, investors urge governments to request that the FSB seek to incorporate the TCFD recommendations into its guidelines
Briefing Paper on the 2018 Global Investor Statement to Governments on Climate Change
This Briefing Paper accompanies the 2018 Global Investor Statement to Governments on Climate Change. It has been prepared by seven investor organizations including the Asia Investor Group on Climate Change (AIGCC, Asia), CDP, Ceres (North America), the Investor Group on Climate Change (IGCC, Australia/New Zealand), the Institutional Investor Group on Climate Change (IIGCC, Europe), Principles for Responsible Investment (PRI) and the UN Environment Finance Initiative (UNEP FI). These groups collectively represent hundreds of investors worldwide with trillions of dollars in assets under management.
Q3 hedge fund letters, conference, scoops etc
Institutional investors have a responsibility to manage and protect the assets of millions of savers and individuals worldwide, including from the effects of climate change. Investors also manage large pools of long-term capital and play a crucial role in financing the transition to a low carbon, more climate resilient, economy. To this end, investors urge governments to update and strengthen their climate-related policies to accelerate and expand further investment flows.
Investors are concerned that the implementation of the Paris Agreement is currently falling well short of the agreed goal of “holding the increase in the global average temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels.” This gap not only increases the physical risks from climate change for current and future generations, but also heightens economic and policy uncertainty and hampers investors’ ability and willingness to continue to properly allocate the trillions of dollars that are needed to support the low carbon transition process.
This briefing paper provides recommendations to governments on the specific steps that investors believe are needed to support a smooth and just transition to a low carbon, more climate resilient, economy. It focuses on three major areas for government action: 1) Achieve the Paris Agreement’s goals, 2) Accelerate private sector investment into the low carbon transition and 3) Commit to improve climate-related financial reporting.
Investors call on global leaders to:
Investors remain firmly committed and ready to work with government leaders to implement these actions.
The implementation of the Paris Agreement that came into force in November 2016 is currently falling well short of the agreed goal of “holding the increase in the global average temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels.” Indeed, the full implementation of current Nationally Determined Contributions (NDCs) would lead to an unacceptably high temperature increase, potentially in the range of 2.9 to 3.4°C relative to pre-industrial levels1.
This is of great concern for investors, as global warming at that scale would have large and detrimental impacts on global economies, society and investment portfolios, now and into the future2. Policy makers need to close this gap urgently.
Policies that support the attainment of the Paris Agreement’s goals will provide the private sector with greater certainty as to governments’ commitment to tackling climate change. This will, in turn, affect investors’ ability to assess climate-related risks and opportunities, to measure and disclose portfolio exposure to the low carbon transition and physical climate impacts, and to further invest in opportunities to support a low carbon, more climate resilient, world.
With that in mind, investors recommend that global leaders:
i. Update and strengthen nationally-determined contributions to meet the goals of the Paris Agreement, starting the process now in 2018 and completing it no later than 2020, and focusing swiftly on implementation – There is an ambition gap to the goal of the Paris Agreement that needs to be closed with urgency.
ii. Formulate and communicate long-term emission reduction strategies in 2018 – Investors welcome the announcement by some nations to publish or commit to developing mid-century, long-term, emission reduction strategies as part of their commitment to the Paris However, many governments are yet to submit their long-term strategies, with only a small number revealing their plans out to 20505. Investors urge all nations that have not already done so to submit mid-century, long-term emission reduction strategies this year.
iii. Align all climate-related policy frameworks holistically with the goals of the Paris Agreement – Investors urge and reaffirm the need for nations to strive for greater consistency across policy mechanisms to support the attainment of the Paris Agreement goals.
iv. Support a just transition to a low carbon economy – Investors encourage governments to transition to a low carbon economy in a sustainable and economically inclusive As stated in the Paris Agreement, this must include “the creation of decent work and quality jobs in accordance with nationally defined development priorities”, by providing appropriate support for workers and communities in industries undergoing transition8. Additionally, governments should work with investors to ensure that the benefits and opportunities created by acting on climate change and the increased adoption of clean energy technologies are accessible to all9.
Investors are taking action on climate change by making significant investments into the low carbon economy across a range of asset classes10. Investors are also increasingly incorporating climate change scenarios and climate risk management strategies into their investment processes11 and engaging with high-emitting companies12.
Despite these efforts, it is widely acknowledged that there is a clear and pressing need to scale up financial flows to support the low carbon transition process13. A recent survey of institutional investors identified policy uncertainty as one of the key obstacles to accelerating investments into low carbon and climate resilient opportunities14.
To strengthen investor confidence to further invest in the low carbon economy, it is vital that global policy makers deliver strong and continued support for climate action, including through incorporating Paris-aligned climate scenarios into all relevant policy frameworks and energy transition pathways, putting a meaningful price on carbon, phasing out fossil fuel subsidies by set deadlines and phasing out thermal coal power worldwide by set deadlines.
Against that backdrop, investors encourage global leaders to take the following actions:
i. Incorporate Paris-aligned climate scenarios into all relevant policy frameworks and energy transition pathways – Investors encourage governments to work closely together in consultation with businesses and investors to incorporate Paris-aligned climate scenarios into their policy frameworks and energy transition pathways.
ii. Put a meaningful price on carbon – Investors reiterate the need for governments to provide stable, reliable and economically meaningful carbon pricing to help redirect investment commensurate with the scale of the climate change challenge. Carbon pricing will level the playing field for low carbon technologies and more adequately reflect the costs of climate-related externalities. Market-based mechanisms are most effective when supported by complementary mechanisms such as public procurement measures, regulations, energy targets, carbon performance and energy efficiency standards.
iii. Phase out fossil fuel subsidies by set deadlines – Investors are concerned about the continued existence of subsidies and public finance that support the production and consumption of fossil fuels.
iv. Phase out thermal coal power worldwide by set deadlines – Investors are concerned about the continued expansion of traditional thermal coal power stations in some jurisdictions that puts the attainment of the Paris Agreement goals at risk.
One of the essential ingredients for investors to manage the transition to a low carbon economy effectively is having access to reliable, consistent and comparable information about climate- related risks and opportunities. If short-, medium- and long-term climate risks are not fully evaluated and disclosed, ill-informed investment and corporate decisions will drive up the cost of the transition for policy-makers, investors, businesses and – ultimately – for consumers and communities.
To this end, investors welcome the recommendations of the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosures (TCFD) and are taking practical steps to assist their implementation around the world29. The TCFD provides global recommendations on climate-related financial disclosures, including four widely adoptable principles that are applicable to organizations across sectors and jurisdictions30. The TCFD has been endorsed by over 238 companies, including 150 financial institutions representing a combined market capitalization of over US$6 trillion and US$81.7 trillion assets under management.
In order for the TCFD to be effective, it is vital that governments commit to improve climate- related financial reporting standards by publicly supporting the adoption of the TCFD recommendations and the extension of its term beyond September 2018.
